Airbnb tax warning for South Africa

Airbnb and similar platforms are set to be integrated into the mainstream tourism industry, which could result in them having to pay hospitality taxes.

While such policy has been on the cards for some time, Old Mutual’s head of tax, Nazrien Kader, expects clarity to be provided during the Budget Speech on 19 February.

This is not likely to generate significant revenue for the government, but it does symbolise the formalisation of the short-term rental sector and the increasing regulatory scrutiny on Airbnb.

Short-term rentals are booming in South Africa, with demand skyrocketing across major metros and particularly in Cape Town.

This has resulted in companies playing in this space, particularly Airbnb, coming under increased scrutiny on the back of complaints that they are pricing local out of rentals.

The scrutiny reached a fever pitch earlier this year when Cape Town residents complained about increased rental prices and called for rent control.

The Western Cape has the highest rental prices in South Africa, with the average rent 21% higher than the national average.

Airbnb was said to be a major driver of this by encouraging property owners to push up rental prices to capitalise on increased tourism.

In particular, the platform is popular with digital nomads, who have been accused of distorting rental markets, pricing out locals, and providing minimal benefit to locals.

While the issue reached a boiling point in January, increased regulation of short-term rentals has been on the cards for some time.

Airbnb itself has called on the government to accelerate the implementation of a national host registration system that would give authorities better visibility of hosting activity in their area and inform additional measures where needed.

Kader said that measures could be announced during the Finance Minister’s Budget Speech on 19 February as it may involve the payment of hospitality taxes.

“On the cards is the finalization of policies by the Department of Tourism that would seek to integrate popular Airbnb and similar platforms into the mainstream tourism industry, which could include the payment of hospitality taxes,” Kader said.

Such tax changes will be among several likely to be announced by the Finance Minister to try to make up for an expected revenue shortfall of R22.3 billion, Kader said.

Tax collections from individuals continued their upward trend, increasing by 13.2% for the fiscal year to December 2024 compared to December 2023.

However, corporate income tax and VAT have been relatively flat, with corporate income tax reflecting a reduction of 0.4% while VAT collections presented an increase of just 1.2%.

Overall, this is the primary reason for the National Treasury projecting an undershoot of 2024 budget estimates by R22.3 billion in 2024/25.

While it is unlikely that the National Treasury will introduce any new taxes, existing taxes are likely to be changed.

The usual lower-than-inflationary adjustments to the individual tax brackets can be more or less guaranteed, she said.

Whilst speculation is rife that the Minister may move to eliminate or reduce the medical aid tax credits, Old Mutual expects the status quo until the implementation of National Health Insurance.

In an address to members of Parliament last year, the National Treasury confirmed that it is exploring the feasibility of a wealth tax.

The debate endures with advocacy groups pushing for early implementation and economists cautioning that such a tax on wealth could risk driving taxpayers away through emigration and tax planning strategies.

Kader expects the National Treasury to tinker with existing ‘wealth taxes’ in the current regime, such as donations tax (currently 25%), estate duty (dual rate of 20% on the first R30m and 25% thereafter) and the capital gains tax inclusion rate for individuals (currently 40%).

From a corporate tax perspective, no changes are expected other than the further removal of tax incentives in line with the National Treasury’s stated aim of simplifying the tax system.

Whilst the VAT rate is expected to remain the same, the expectation is that further food items will be added to the basket of zero-rated goods and services.